June 16, 2017

NCUA to seek public comment on OTR

A request for public comment on the overhead transfer rate (OTR) methodology is on the agenda for the June meeting of the NCUA, which is now set for Friday (rather than the typical Thursday), June 23. The agenda item on the OTR is the first action contemplated by the board since it issued a comment call in spring, 2016 on the issue. Last year (from January to April, 2016), about 40 credit unions, trade groups and individuals – as well as NASCUS – posted comments.

In subsequent analysis of the comments, NASCUS President and CEO Lucy Ito noted the consistency of those provided. “The letters posted show two consistent messages – that change is needed, and that thanks to NCUA are in order,” she wrote in an op-ed appearing last year in Credit Union Times. Ito pointed out that the comment letters filed voice a consistent message from the credit unions, trade groups and other stakeholders that change in how the OTR is determined and managed is a vital issue that must be addressed. “With little or no exception, these letters urge the agency to make changes to the current system – and ensure a fair allocation of costs to both state and federally chartered credit unions,” Ito wrote.

In the column, the NASCUS leader also pointed out that the letters consistently praise NCUA for bringing the issue up for comment. “The second consistent message contained in nearly every comment letter we saw (including ours): sincere thanks and gratitude to the NCUA board for bringing up this issue for public comment. This was a big step for the agency, especially in terms of transparency -- and it is appreciated,” she wrote.

Other action scheduled at the June 23 board meeting includes:

A proposed rule on corporate credit unions;

A final rule on a statutory inflation adjustment of civil money penalties;

A final rule on freedom of information act requests;

A final rule, safe harbor (part 709);

A board briefing on the agency’s enterprise solution modernization program.

TREASURY RECOMMENDS CAPITAL CHANGES FOR CREDIT UNIONS

NCUA should revise its risk-based capital (RBC) requirements to only apply to credit unions with total assets of more than $10 billion, or eliminate risk-based capital requirements for credit unions satisfying a 10% simple leverage (net worth) test, the Treasury recommends in a comprehensive report on the nation’s credit union and bank systems.

Additionally, allowing credit unions to rely in part on “appropriately designed supplemental capital” to meet a portion of their risk-based capital requirements is also supported in the long-awaited report by Treasury (it was mandated by presidential executive order in early February). Such supplemental capital instruments, the report states, if required to have essential prudential features (e.g., noncumulative perpetual preferred stock and subordinated debt with long-maturity and lack of early event acceleration), “will allow credit unions to increase their capital from investors rather than relying solely on retained earnings.” The report also recommends generally raising the threshold of stress-testing for federally insured credit unions to those with $50 billion in assets, from the current threshold of $10 billion.

The 149-page report, “A financial system that creates economic opportunities: Banks and credit unions,” is the first of an expected four reports from the agency in response to a Feb. 3 executive order by President Donald Trump calling for a comprehensive review of financial regulations. Although the House has already passed H.R. 10, the “Financial CHOICE Act,” which makes sweeping changes to the federal financial regulatory structure, the Treasury’s report is expected to provide a framework for Senate debate on financial regulatory reform – particularly since the House bill has been described as a non-starter in the Senate. This week Senate Banking Committee Chairman Mike Crapo (R-Idaho), in remarks to an industry group, indicated he plans to use the Treasury Department’s recommendations as grist for crafting a bill to bolster economic growth and provide relief to financial institutions.

(Separately, in a speech this week to another industry group, Acting NCUA Board Chairman J. Mark McWatters said of the report that it was “comprehensive, substantive, and practical and, with respect to its recommendations concerning credit union regulation, is consistent with the policies NCUA is advancing.”)

MORE FROM THE REPORT: REDUCING OVERLAP, ACTING ON STRUCTURE

The report also looks at overlap and fragmentation within the federal regulatory system – including that for credit unions. “For credit unions, there are elements of overlap between the NCUA, as consolidated regulator, and the CFPB and state regulators,” the report states. “These areas of overlap can create confusion and increased costs for supervised entities, as well as increased burdens for the regulatory agencies themselves.”

More broadly, the Treasury report recommends that Congress take action on the U.S. federal financial regulatory structure, primarily aimed at reducing fragmentation. “This could include consolidating regulators with similar missions and more clearly defining regulatory mandates,” the report states. “Increased accountability for all regulators can be achieved through oversight by an appointed board or commission or, in the case of a director-led agency, appropriate control and oversight by the Executive Branch, including the right of removal at will by the President.”

In other areas of interest, the report recommends:

That Congress consider raising the current asset threshold for smaller banks eligible for an 18-month examination cycle, and that NCUA makes parallel changes to extend examination cycles for smaller credit unions.

All regulators should expand upon current efforts to further coordinate and rationalize their examination and data collection procedures to promote accountability and clarity.

Numerous changes for the CFPB, including: make the Director removable at-will by the President; alternatively, restructure the bureau as an independent multi-member commission or board, “which would create an internal check on the exercise of agency power;” fund the bureau through the annual congressional appropriations process; issue rules or guidance subject to public notice and comment procedures before bringing enforcement actions in areas in which clear guidance is lacking or “the CFPB’s position departs from the historical interpretation of the law.

CLOSING CORPORATE STABILIZATION FUND ‘TOP PRIORITY’

Closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) in 2017 remains a top priority, Acting NCUA Chairman McWatters also said this week, noting that NCUA staff “is carefully studying that possibility,” and has been working on a plan that the agency’s Board expects to receive in the coming weeks. That closure would begin the process of returning surplus funds to federally-insured credit unions through a Share Insurance Fund dividend in 2018, he told a meeting of the National Association of Federally-insured Credit Unions (NAFCU).

STATE SYSTEM LEADERS BRING MESSAGE TO CONGRESS

Fanning out across the House side of Capitol Hill in Washington this week, members of NASCUS leadership met with both members of Congress and their staffs to discuss issues of importance to the state credit union system, including such issues as modernizing the capital structure of credit unions and more transparency at NCUA.

Meeting with members and staff of the House Financial Services Committee and other key panels, the NASCUS leaders (including Board Chairman Mary Ellen O’Neill of CT; Credit Union Advisory Council Chairman Patty Idol of NC; NASCUS Board Members Bryan Schneider of IL, John Kolhoff of MI, Janet Powell of OR and Kim Santos of WI; and Advisory Council Members Mike Williams of CO and Linda Childs of TN) outlined the role of state credit unions, what NASCUS does and who the association represents, and focused on top issues. Among the issues: a modernized capital framework, state representation and more transparency at NCUA, clarity for financial institutions serving legal marijuana businesses and respect for the wisdom of the state authority.

“We had a series of very strong meetings with key congressional offices, both House members and top staff, and we think we have reinforced the role and importance of the state credit union system,” said NASCUS President and CEO Lucy Ito. “Several offices encouraged us to keep them informed of the state system’s views, particularly as Congress considers financial regulatory reform. We will be taking them up on that,” she said.

COURT WON’T WIDEN DEBT COLLECTION ABUSE LAWS

Debt-collection abuse laws won’t be widened to include those who purchase debt, the result of a decision by the U.S. Supreme Court this week, which was also the first decision written by the newest member of the nine-justice panel, Neil Gorsuch. In the decision, the court upheld a lower-court ruling that dismissed a proposed consumer class-action suit against auto lender Santander Consumer USA Holdings, Inc. That suit alleged Santander violated the Fair Debt Collection Practices Act, which the plaintiffs also argued should apply to cases in which the creditor does not originate the loan being collected. But the high court upheld a lower court’s decision, which held that the statute applies only to companies which collect debts on behalf of others (debt collectors), but not to businesses (including Santander) which buy debt from companies after they default. Gorsuch, in his opinion, indicated that it could be argued the law should be revisited – but that, he said, is up to Congress, not the courts. “Constant competition between constable and quarry, regulator and regulated, can come as no surprise in our changing world. But neither should the proper role of the judiciary in that process — to apply, not amend, the work of the People’s representatives,” he wrote.

NOMINATIONS OPEN FOR 2017 NASCUS PIERRE JAY AWARD

Significant contributions made by an individual, program or organization will be honored by the 2017 NASCUS Pierre Jay Award, which will be conferred at the 2017 NASCUS State System Summit, Aug. 29-Sept. 1 in San Diego. Deadline for nominations is July 28. According to NASCUS President and CEO Lucy Ito, the winner will exemplify outstanding service, leadership and commitment to the state credit union system. “In late August, when the state system gathers in San Diego to celebrate our 2017 State System Summit over a four-day period, we will be bestowing the Pierre Jay Award on a worthy individual, program or organization,” she said.

Eligibility for nomination to the 2017 Pierre Jay Award is open to anyone, program or organization that has made a significant contribution to the state credit union system over the last year (or years); the nominee does not necessarily have to be affiliated with NASCUS. Nominees could include credit union regulators, practitioners (paid staff, volunteers or members) federal or state lawmakers, trade groups or others. However, only NASCUS members are eligible to submit a nomination for consideration.
Criteria used in judging the winner of the award include:

Nominee must show (with examples) contributions that have benefited the state credit union system significantly in the past 1-5 years (or more);

In making those contributions, winner must demonstrate service, leadership and commitment – giving examples of each – to the state system and/or NASCUS.

Other factors relevant to service, commitment and leadership to the state system.

For more information, including the official entry form, see the link below.

NASCUS has developed a summary of the NCUA proposed rule on voluntary mergers, for "federally insured credit unions," noting the comments-due date of Aug. 7; more in upcoming issues of NASCUS Report … A community credit union with potential service to 40,000 residents in a community of Lincoln, Neb., has been chartered, NCUA announced this week. Community HOPE Federal Credit Union will serve residents who live, work, worship, attend school, participate in associations headquartered in, or participate in programs to alleviate poverty or distress located in a prescribed community in Lincoln from a service facility in the city’s downtown area, NCUA stated.